Full Dollarization: TheCase of Panama

Ilan Goldfajn and Gino Olivares ()

Economía Journal, 2001, vol. Volume 1 Number 2, issue Spring 2001, 101-156

Abstract: This paper analyzes the case of Panama, one of the largest countries currently adopting the dollar as its legal tender, and evaluates some of the predictions of the theory on the costs and benefits of full dollarization. The main conclusions drawn from the case of Panama are that on one hand, dollarization does not guarantee fiscal discipline, the elimination of currency risk does not preclude default risk or the high volatility of sovereign spreads, and that dollarization may increase slightly GDP growth volatility. On the other hand, a dollarized economy delivers an impressive inflation performance and may even reduce the impact of external confidence shocks, although not external real shocks. Finally, it is not clear whether the low interest rates in Panama are a consequence of the dollarization regime or the competitive internationalized banking system.

Keywords: Dollarization; Panama; Exchange Regime (search for similar items in EconPapers)
JEL-codes: E42 F33 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000425:008708

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